Meituan (HKEX: 3690) released the third-quarter financial report for 2024 today: revenue was 93.6 billion yuan, a year-on-year increase of 22.4%. Net income was 12.9 billion yuan, compared to 3.6 billion yuan in the same period of 2023; adjusted net income under non-International Financial Reporting Standards was 12.83 billion yuan, an increase of 124.0% year-on-year.

After the financial report was released, Meituan's Chairman and CEO Wang Xing and Senior Vice President and CFO Chen Shaohui participated in the subsequent analyst conference call to interpret the report.

The following is a transcript of the Q&A session during the conference call:

Citic Securities' analyst Ya Jiang: My question is about Meituan's food delivery business. We noticed that Meituan announced a series of initiatives at the "2024 Dining Industry Conference" held in September this year, aiming to support industry development and help merchants better cope with current challenges. Could the management share more details about these initiatives with us? Will the company increase investment in the future? Considering the large scale of the company's food delivery business currently, how does the management predict the future growth trajectory of the company's business?

Wang Xing: In my view, as consumer demand continues to evolve, the catering industry needs to adapt to these changes for sustainable growth, which is very important. In the current new environment, Meituan is committed to becoming a reliable partner for merchants nationwide, helping them achieve growth. We hope to help businesses expand their user base and better manage customer relationships in each business cycle. In Meituan's ecosystem, we aim to drive the healthy and sustainable growth of the catering and food delivery industries together with merchants.

To achieve this vision, we have upgraded the 'Flourishing Plan' for catering merchants, aimed at promoting industry innovation, unleashing market demand, and boosting merchant confidence. To alleviate merchants' concerns about excessive competition in the industry, we have streamlined Meituan's merchant marketing tools and ensured a fair flow distribution mechanism during marketing activities. From the perspective of Meituan's ecosystem, we currently offer 'Commission Rebates' services for 'Brand Satellite Stores' for 6 to 12 months. We have also provided 'AI Smart Site Selection' services to over 500 brands to help them establish 'Brand Satellite Stores'. In addition, we monitor food safety with merchants, enhance food safety supervision, strengthen management stability, and help merchants alleviate and resolve many consumer concerns about food safety.

Recently, we launched the 'Catering Merchant Support Action' by providing a series of subsidies to support merchants. Meituan has always been committed to the continued development and innovation of its business. Currently, the total initial investment for this plan is 1 billion yuan. In the future, we will provide cash and other types of subsidies to help merchants optimize their supply chain, improve service quality, introduce more valuable products, and ultimately improve their operational efficiency.

Furthermore, we will support mass catering brands in continuously exploring new channels, innovating business formats, encouraging high-quality brands to enter the lower-tier markets, and providing free online operation tools and services for 'Time-Honored' brands to help these merchants with their online operations and marketing. Through the above approaches, we hope to help merchants seize market opportunities and gradually become industry leaders. Finally, we will also extend the new store traffic support for small and medium-sized merchants from the original 7 days to a maximum of 14 days.

In our view, the current online food delivery business in China has developed to a relatively mature stage. Nevertheless, we still believe that operating restaurant delivery will inevitably meet the dining needs of more families. We will continue to delve into this direction and continuously expand the scale. We believe that 'ordering takeout' is becoming a lifestyle choice for people, and more and more users will choose this way of life in the future. It can be said that the industry has tremendous growth potential.

In the Chinese market, Meituan can be considered the preferred food delivery platform for users. We have a large number of high-frequency users and the ability to benefit from industry growth. We believe that from a national perspective, the user base of Meituan's food delivery business will continue to expand in the future. Additionally, the consumption frequency and ARPU (average revenue per user) of our main user base show good growth trends. We believe that the initial consumption frequency and ARPU of new user groups will be higher than those of the main user base. The growth of this user segment is also faster. We believe that this will help drive long-term, sustainable growth of Meituan's food delivery business.

In summary, we believe that the catering service industry has the ability to achieve long-term growth and has tremendous potential. Even at the current scale, we still believe that Meituan's food delivery business can maintain stable growth in the future. Currently, the industry is in a transformation stage, and we will work closely with merchants to turn challenges into opportunities. It is important to note that building a healthy, beneficial ecosystem takes time. Our recent series of measures are just the beginning. Looking ahead, we will continue to enhance support for the industry, help merchants better cope with difficulties and challenges, and achieve sustainable and healthy growth together with merchants.

Goldman Sachs analyst Ronald Keung: We have noticed that there seems to have been a number of business incentive policies recently. Does the management currently see signs of a recovery in the relevant businesses? Looking ahead to next year, how does the management predict the growth trend of the core local business next year? How will the company balance growth and profitability?

Chen Shaohui: First, about the core local business.

We have indeed noticed that since the end of September this year, the country has introduced a series of consumption stimulus policies. We believe that these measures are aimed at restoring consumer confidence and unlocking the huge potential of the Chinese market. On our Meituan platform, we have also noticed a recovery in hotel and travel consumption during the National Day holiday this year. In October this year, the average order value of Meituan's food delivery business showed a smaller year-on-year decline compared to the previous months. Of course, the positive impact of these measures will take some time to penetrate and ferment. We believe that these policies will provide more support to the real economy, stimulate consumer willingness to spend, and bring more growth opportunities to our business.

Since the beginning of this year, Meituan has been actively adapting to the constantly changing consumer trends in order to better meet the needs of consumers and merchants. We have delved into the industry supply chain, explored new supply models, and launched a series of services such as 'Grouped Meals,' 'Brand Satellite Stores,' 'Meituan Flash Warehouse,' and more. Leveraging Meituan's platform advantages and marketing activities, we continuously improve marketing solutions and enhance the competitive pricing of our products. In addition, we have seized the opportunity of 'county economy' transformation and consumer rejuvenation, vigorously penetrating the business into low-tier city markets.

Currently, we have seen significant increases in merchant scale, consumer scale, and transaction volume in the low-tier markets. As we continue to integrate and upgrade Meituan's 'Divine Member' program, we are able to achieve more cross-selling in core businesses, effectively increasing the purchase frequency and consumption categories of core consumers. It is because of these positive measures that we have achieved strong growth in the first half of this year and in the third quarter.

Regarding the issue of next year's growth that you mentioned in your question. We will continue to implement a series of new strategies, enhance brand awareness. We are confident that Meituan's core local business will maintain healthy growth.

In terms of changes in consumer trends. We believe that Meituan's instant retail business will continue to grow steadily on the existing scale, especially Meituan's flash purchase business, which will continue to benefit from the online digital transformation and our continuous efforts on the supply and demand side. We believe that the growth of Meituan's flash purchase business will continue to significantly outpace that of the takeaway business. We will continuously drive cross-selling between Meituan's takeaway business and flash purchase business to increase user purchase frequency.

Regarding on-site business. We see enormous potential in related businesses, with consumer trends continually evolving. Considering the huge opportunities in lower-tier markets, we expect related businesses to continue to maintain healthy growth in the coming years. At the same time, we will further promote the Meituan 'Magic Member' program, explore more cross-selling methods, and penetrate more synergies in core local business.

Regarding the balance between growth and profitability that you mentioned. We always believe that for Meituan, growth is our top priority. At the same time, we will also focus on profit growth, or 'high-quality growth.' Additionally, maintaining the healthy operation of the Meituan ecosystem is also crucial. In the current environment, businesses on the Meituan platform need more support.

Therefore, we will continue to invest in the Meituan ecosystem. We believe that a healthy, good ecosystem will also bring us stronger long-term competitiveness. In this process, we will also focus on operating efficiency. Our goal is to achieve high-quality growth of the business and the company's strategic objectives, ensuring that profits can maintain sustainable annual growth.

Morgan Stanley analyst Gary Yu: My question is about the Meituan flash purchase business. How does management measure the penetration rate of instant business into online retail business? How does Meituan's Lightning Warehouse play a role in increasing the penetration of Meituan flash purchase? What new categories does the management think are worth focusing on in the future?

Chen Shaohui: I am glad you are interested in our Meituan flash purchase business. We believe that the future growth potential of Meituan's flash purchase business is very significant.

Over the past few years, we have found that instant retail has profoundly changed people's lifestyles and also transformed the entire retail industry. Today, more and more consumers believe that all the goods they need can be delivered to their doorstep within 30 minutes. The industry has created an efficient, dynamic flywheel effect. In this regard, Meituan will play a key role in the future of instant retail. We believe that in the long run, the share of instant retail in the entire e-commerce market will reach at least 10% or more.

In the past few years, we have continuously expanded the supply of Meituan Flash Mart to make instant retail more in line with consumer demands. In addition, we have upgraded related technologies and infrastructure, delving into the supply chain, hoping to continuously expand market demand, especially increasing our penetration in lower-tier markets. Currently, Meituan Flash Mart has covered over 0.03 million stores covering different product categories, including over 0.01 million Flash Mart convenience stores. Additionally, more and more large retailers are also partnering with us. Taking Miniso as an example. With its powerful product capability, currently, 30% of Miniso's in-store products are exclusively sold online through Meituan Flash Mart, with more products to be launched in the future. As the instant retail business continues to develop, we expect that more and more large retailers will join the Meituan platform in the future. Meituan Flash Mart can provide these merchants with efficient growth models, and their participation will also broaden our product categories and quality, improving user experience.

In summary, in every city, every town, as long as these markets can provide food delivery services, we see growth opportunities for Meituan Flash Mart. We believe that Meituan Flash Mart helps accelerate the penetration of instant retail. Recently, we have also launched a merchant support program called the 'Star Program', providing more comprehensive resource support for Meituan Flash Mart merchants and stakeholders. By 2027, we believe that the GMV (Gross Merchandise Volume) of Meituan Flash Mart will exceed 200 billion yuan, with the number of stores surpassing 0.1 million, and achieve full-category coverage.

At present, instant retail covers a wide range of categories, but the penetration rate of some categories is very low. Looking ahead, we plan to introduce more brands and merchants, continue to allocate resources to drive growth. In addition to Flash Mart convenience stores, in the future, Meituan Flash Mart will cover a broader range of product categories to meet various needs in consumers' lives. These categories include but are not limited to electronics, housewares, maternity and baby products, daily necessities, clothing, beauty products, pet care, flowers, medical devices, and more. In the future, Meituan Flash Mart will continue to expand its business scale, penetrate deeper into lower-tier markets, and provide users with a wider range of product supplies.

jefferies financial analyst Thomas Chong: My questions are related to Meituan's offline hotel and travel business. For Meituan's offline hotel and travel business, could the management share with us how Meituan's 'Magic Member' is performing in lower-tier cities? How does the management think the current competitive landscape will evolve? What are the management's expectations for the company's operating profit next year? In the long term, as the competitive landscape stabilizes, what are the management's expectations for the company's long-term operating profit?

In July this year, we expanded the coverage of the Meituan 'Magic Member' program to some key categories of our local core business and promoted it nationwide. Since then, we have made significant progress on both the merchant and consumer sides.

As for the offline hotel and travel business, the number of participating merchants has exceeded 50%, and the proportion of orders using 'Meituan Magic Vouchers' continues to increase. Our integrated marketing solutions and services effectively enhance consumers' perception of the cost-effectiveness of Meituan 'Magic Member'. Our goal is to gradually attract over 0.1 billion Meituan 'Magic Members' from food delivery to offline hotel and travel businesses. Meituan 'Magic Members' can effectively increase traffic and promote customer acquisition for offline hotel and travel, attracting more active users and increasing transaction frequency. Looking ahead, we will continue to expand the coverage categories of Meituan 'Magic Members' and expand the product range. Additionally, through refined customized operations, we will continuously improve the commercialization rate to help merchants efficiently acquire traffic and increase transaction volume.

We have observed the tremendous potential of the offline hotel and travel business in lower-tier markets. This year, more and more lower-tier market merchants, such as dining, leisure and entertainment businesses, have joined the Meituan platform. We aim to continuously increase Meituan's penetration in lower-tier markets. Additionally, our diversified products allow local consumers to enjoy discounts and convenience. We have seized the new opportunities in county tourism, meeting the diverse needs of tourists, such as special group tours, travel photography, and more. From this perspective, in lower-tier markets, our offline hotel and travel business has achieved high growth.

Industry competition. Currently, our main focus remains on the long-term and healthy development of our local core business. Compared to our counterparts, Meituan has differences in business models and operational strategies. We have different categories, products, scales, and marketing efficiency. Lately, we have observed that the industry is becoming more rational and efficiency-oriented. In the current competitive environment, merchants are increasingly concerned about the return on investment (ROI) in daily operations and marketing expenditures. Meituan has marketing tools with higher ROI, combined with our business's coverage scenes, we believe Meituan's advantages on the supply side will further stand out. We can provide merchants with more core business traffic and comprehensive services, achieving integrated operations. In the future, we will continue to closely monitor the progress of our counterparts; at the same time, we will focus on innovating our product forms, improving operations and investment efficiency.

Overall, we remain confident in Meituan's long-term competitiveness in the in-store wine and travel business. As mentioned earlier, after the company's organizational restructuring, our primary focus on Meituan's in-store wine and travel business is on order volume and user base, as these two data points are key drivers of GTV growth.

Regarding the profitability issue you mentioned. Currently, we are focused on "operating profit growth" rather than "operating profit margin". As we have seen in the past few quarters, our profit growth is relatively healthy. Looking ahead, we believe the market still has growth potential, which can be a driver for our sustainable business growth. With the gradual stabilization of the competitive landscape, we believe Meituan's core business will generate more synergies, which will help steadily improve the operational efficiency of our in-store wine and travel business.

UBS Group analyst Kenneth Fong: My questions are about Meituan's overseas business. Currently, how is KeeTa's (Meituan's overseas business) progress in the Saudi Arabian market? Will the company expand beyond Saudi Arabia in a "step-by-step" manner? Or does management plan to quickly expand the business to other Middle Eastern cities? How does management assess Meituan's strengths and weaknesses in the Middle East market? What are the current thoughts and plans of the management regarding overseas investments?

Wang Xing: Thank you for your interest in KeeTa. Currently, KeeTa's scale is still very small, and the business is still in the early stages.

On October 9, 2024, we officially launched KeeTa in Riyadh, the capital of Saudi Arabia. So far, KeeTa's operations in Riyadh have been less than two months. In fact, about a month before this, probably in early September, we conducted a pilot operation in a small city called Al-Kharj near Riyadh. Overall, our operations in Saudi Arabia have been for approximately two months. Therefore, it can be said that our business is still in a very early stage.

However, so far, we have seen very encouraging progress and results: we have received support from consumers and local merchants, both consumers and local delivery partners have been very positive in their feedback. The Saudi people are also particularly friendly, and they are very optimistic about the country's future and economic development. This is particularly encouraging. When entering the Saudi market, we firmly believe that we can bring value to local users and the local market ecosystem.

Of course, we are also aware that there are local competitors in the area. In fact, before we entered the local market, there were already several local takeout merchants in the Saudi Arabian market. However, we still believe that Meituan and KeeTa can inject new vitality into the local market. Our goal is very clear, what we want to convey to everyone is: KeeTa is faster. Our job is to take orders and deliver to the door. It is not easy to serve such a large market like Riyadh. Thanks to the operational capabilities and technical platform we have developed in the Chinese market over the past decade, we understand how to organize the delivery network and how to ensure faster food delivery. These are the core needs of consumers.

From this perspective, since our business in Saudi Arabia is still in a very early stage, it is meaningless to discuss expanding to markets outside of Saudi Arabia at the moment. Moreover, currently, KeeTa's operations in Saudi Arabia are still concentrated in Riyadh, the main city. It is worth noting that Saudi Arabia is a large country, and there are many other markets we want to enter. Therefore, our current focus is on the Saudi Arabian market. As for the Riyadh market, we have observed rapid local market developments, with a population of nearly 10 million. I believe there are many growth opportunities hidden within this.

In the long run, Meituan of course hopes to grow into a global company, one with global influence. We hope to bring Meituan's products and services to a larger audience. We want to enter more markets to create more value for local consumers and merchants. In this sense, "global expansion" will be one of the company's long-term strategies. We will maintain an open mindset, hoping to explore opportunities in more countries and regions in the future. But at the same time, we will not rush into any decisions. We will be patient and ensure that each decision is carefully considered. We do not want to hastily enter a market without understanding the local culture, legal system, or local regulatory support.

In conclusion, I believe that respecting all aspects of each ecosystem is very important. We hope to provide delivery services to more consumers. In the future, ordering takeout will become a daily habit for people, which has already become a reality in the Chinese market. We believe that many countries and markets also have the potential to achieve this. However, we understand that this will take more time. So, we will not rush, and please continue to follow our latest updates.

HSBC analyst Charlene Liu: I see the company recently issued a total of $2.5 billion in senior notes, and the free cash flow is also very strong. What is the management's view on the best value for shareholder annual return currently? Will the company be more inclined towards share buybacks in the future?

Chen Shaohui: Starting from early September, we have repurchased over $0.6 billion in shares. Currently, our repurchase amount is approximately 4.2% of the total shares, exceeding the total from 2021 to 2023. As we mentioned before, our goal is to increase long-term shareholder returns through investing in various growth opportunities and balanced capital allocation. In September of this year, we announced the issuance of a total of $2.5 billion in senior notes. After the issuance of the senior notes, we will have more offshore cash reserves to support the company's overseas expansion and future shareholder return plans.

Looking ahead, we will continue to invest in capital allocation strategies and shareholder returns. Share buybacks remain the primary method of returns at this stage. We will use share buybacks to offset dilution effects. At this stage, we cannot commit to a fixed proportion of cash for shareholder returns each year, but we will maintain a prudent approach to cash outflows and executions, making decisions based on the needs of business development. (End)